Quality dividend stocks are shares of companies that not only pay out regular dividends to their shareholders, but also have strong financial health, consistent earnings growth, and a solid business model. Such companies are part of an elite group known as the Dividend Kings, who have consistently increased their dividends for the past 50 years.
These stocks are often a reliable option for investors seeking passive income, as well as the potential for capital appreciation.
Companies in stable and mature industries, like consumer staples, utilities, and healthcare tend to be better candidates for consistent dividend payments. Here are three Dividend Kings that deserve a spot in your portfolio.
1. Procter & Gamble
Procter & Gamble (PG), a leading consumer goods company, has a long history of dividend payments and increases, backed up by its diverse product line and robust brand portfolio. Notably, the company has raised dividends for the past 68 years, including the recent increase in April.
Valued at $391 billion, P&G stock has surged 13.6% so far this year, compared to the S&P 500 Index’s ($SPX) gain of 11.3%.
P&G's annualized forward dividend yield is 2.43%, compared to the consumer staples sector average of 1.89%. Plus, P&G's forward payout ratio is 57.8%. A reasonable dividend payout ratio indicates that a company distributes a significant portion of its earnings as dividends, while keeping enough to reinvest in the business.
The company has consistently delivered solid earnings, thanks to effective cost management and strategic pricing strategies. In the third quarter of fiscal 2024, the company's net earnings per share (EPS) increased by 11% over the same period last year. P&G generated 87% of earnings in free cash flow (FCF), of which it returned $3.3 billion in the form of dividends and share repurchases during the quarter.
P&G anticipates that its core net EPS will increase by 10% to 11% year on year in fiscal 2024, in line with consensus expectations. Analysts expect earnings to increase by another 6% in fiscal 2025.
Furthermore, in fiscal 2024, P&G expects to generate 90% of its earnings as FCF, with plans to pay out over $9 billion in dividends and repurchase $5-6 billion of its shares.
In the analyst community, Procter & Gamble stock is an overall “moderate buy.” Of the 21 analysts who cover the stock, 13 rate it as a "strong buy," two recommend a "moderate buy," and six suggest a "hold."
The average target price for P&G stock is $171.76, which is 3.2% higher than current levels. Furthermore, its high target price of $185 implies a potential 11.1% gain over the next 12 months.
2. The Coca-Cola Company
Coca-Cola (KO), the beverage giant, has a strong brand and a global presence, making it a dependable dividend payer with consistent cash flow. For the past 62 years, the company has consistently increased its dividends. The company's earnings growth has been similarly consistent, owing to its strong pricing power and cost management strategies.
Valued at $271 billion, KO stock has gained 7.1% in 2024, underperforming a bit compared to the broader market.
Adjusted earnings per share increased by 7% in the first quarter of 2024, compared to the year before. FCF in the quarter totaled $158 million.
The company expects comparable currency-neutral earnings growth of 11% to 13% in 2024. Analysts further expect EPS to rise by 7% in 2025.
Coca-Cola's annualized forward dividend yield is 3.07%, significantly higher than the consumer staples sector average. Furthermore, its forward payout ratio of 64.4% indicates that the company's earnings can support current dividend payments, with the possibility of future increases.
Overall, Wall Street is bullish on KO stock, rating it a "strong buy." Out of the 19 analysts covering KO, 13 rate it as a "strong buy," one as a "moderate buy," and five as a "hold.”
The mean target price for KO is $66.41, which is 5.2% above current levels. Its high target price of $72 implies a potential upside of 14% over the next 12 months.
3. Lowe’s Companies
Founded in 1946, Lowe’s Companies (LOW) has established itself as a leading home improvement retailer. Lowe's has over 1,746 stores in the United States and Canada, offering a diverse range of products such as home improvement supplies, appliances, tools, and more.
Lowe's has increased its dividends consecutively for the past 52 years, demonstrating its commitment to providing consistent returns to its shareholders.
Valued at $132 billion, LOW stock has gained 6% on a YTD basis.
Lowe's earnings have steadily increased from $2.84 per share in 2019 to $13.20 per share in 2023. In the most recent fourth quarter, diluted EPS increased 12% year on year.
In 2023, the company generated FCF of $6.2 billion, and it returned $8.9 billion to shareholders in dividends and share repurchases.
Lowes pays a forward dividend yield of 1.9%, which is very close to the consumer discretionary sector average of 1.89%. Furthermore, a forward payout ratio of 32.7% indicates that there is plenty of room for dividend growth.
While Lowe's expects earnings to fall by 7% to 9% in 2024, it plans to maintain a dividend payout ratio of 35%. Analysts predict that earnings will rise by 10.6% in 2025.
Overall, Wall Street rates LOW stock as a "moderate buy.” Of the 30 analysts covering LOW, 15 have rated it a “strong buy,” one suggests a “moderate buy,” and 14 suggest a “hold.”
The mean target price for LOW is $252.36, which is 6.8% above current levels. Its high target price of $280 implies a potential upside of 18.6% over the next 12 months.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
